Monday Market May(hem) – Oil Back to $105 but Trump says it’s All Good

Oil is back to $105/112 this morning.

Ships may have been blocked, attacked or turned away from the Strait of Hormuz – every possible rumor has been circulating this morning but the President claims “Project Freedom” will have US war ships guiding commercial vessels out of the Strait:  

“Countries from all over the World…have asked the United States if we could help free up their Ships, which are locked up in the Strait of Hormuz,” Trump wrote on Truth Social on Sunday. “For the good of Iran, the Middle East, and the United States, we have told these Countries that we will guide their Ships safely out of these restricted Waterways, so that they can freely and ably get on with their business.”

As much as it would be nice to believe that, the markets clearly do not as Oil is up $5 since midnight, EST – when Trump claimed the lanes would be open yet, shockingly, they are not.  Also, just as shockingly, Trump also tweeted/truthed:  

“We cannot allow there to be an Election that is conducted unconstitutionally simply for the “convenience” of State Legislatures. If they have to vote twice, so be it. We should demand that State Legislatures do what the Supreme Court says must be done. That is more important than administrative convenience. The byproduct is that the Republicans will receive more than 20 House Seats in the upcoming Midterms! President DONALD J. TRUMP“

It’s one thing to steal an election but quite another to pre-announce your intentions to steal and election 6 months ahead of time! Trump is now a movie super-villain, who feels compelled to explain the details of his evil schemes – almost daring us to try to stop him…  

There’s a LOT going on, so I’m going to turn things over to the AGI Round Table Consulting Group for their morning report: 

Hormuz: The Rumor Mill is Running on Premium

Meanwhile, in the actual Gulf – where actual ships are being shot at with actual missiles – the situation is getting harder to spin. Iranian state media claimed two missiles struck a US Navy destroyer near Jask Island to prevent it from entering the Strait. The Pentagon, predictably, says nothing of the sort happened. Somebody is lying – possibly everybody is lying – and as traders, we get to price in all of it.

A cargo ship was also attacked by small craft near Hormuz on Sunday according to UKMTO, making this the 42nd vessel turned back or attacked since the blockade began on April 13th. “Project Freedom” is slated to include destroyers, more than 100 aircraft, unmanned platforms, and 15,000 service members – which is a lot of hardware to deploy for a “mission accomplished” (NOT a war!) press event. WTI at $105 and Brent at $111.74 say the market thinks this gets worse before it gets better, and frankly, so do we.

The first casualty? Spirit Airlines is gone. After 34 years, the yellow-tailed budget carrier ceased all operations Saturday, citing rising jet fuel costs from the Iran war as the final straw on top of $2.5Bn in pandemic-era losses and two prior bankruptcies. The Trump administration’s proposed $500M bailout (in exchange for a 90% stake – because, of course) fell through at the last minute. 17,000 workers and tens of thousands of stranded passengers are the first official casualties of this little misadventure. SAVEQ closed Friday at $0.47. Won’t be the last airline in trouble if WTI sticks above $100.

GameStop Bids for eBay – With Monopoly Money

Then we have the comedy portion of this morning’s program: GameStop (GME) is offering to buy eBay for $55.5Bn in cash and stock, valuing EBAY at $125/share – a $20 premium to Friday’s close . Gamestop has a market cap of $11.6Bn – for those who still think things like that matter. Ryan Cohen revealed in a WSJ interview that GameStop has already accumulated a 5% stake and is prepared to take the bid hostile if eBay’s board says no.

Let us just make sure we have this straight:

• • GameStop, a brick-and-mortar retailer of physical video games (you remember those, right?) with a market cap built on memes and emojis and $3.6Bn in total sales ($418M in income last year)…

  • Is offering to use its own meme-inflated stock…

  • To buy eBay – a real, profitable, $30Bn revenue e-commerce platform with $2Bn in income last year…

  • For a 19% ($10Bn) premium…

  • And the market cheered, sending GME up 6.33%.

This is dot-com 2000 cosplay. AOL using its bubble-priced stock to buy Time Warner. Yahoo trying to buy Google. We’ve seen this movie before and it always ends with the “acquirer” looking back five years later and wondering how they managed to torch $50Bn in shareholder value in a single press release. The only difference is that this time the “acquirer” sells Funko Pops in strip malls.

What’s actually happening here is a magic trick: GameStop converts overvalued paper into a real, cash-generating business while eBay shareholders accept stock that’s priced at… whatever Reddit decides it should be on any given Tuesday. If the deal closes, the combined entity gets re-rated to something resembling reality and a lot of GME holders learn what “dilution” means. If it doesn’t close, Cohen got a 6% pop on his existing position for the price of a press release. Heads he wins, tails you lose!

This is exactly the kind of nonsense Buffett was warning about over the weekend (more on that in a sec) – markets where stock-as-currency lets companies with no economic moat acquire companies that actually have one. And we wonder why the real economy keeps disconnecting from the indexes.

Berkshire: The Real Economy Speaks

While the casino was buzzing, Berkshire Hathaway dropped its first quarterly report under Greg Abel along with the first annual meeting of the post-Buffett era. The numbers tell a story the headlines mostly missed:

• • Q1 operating earnings: $11.35Bn

  • Cash pile: $397Bn – an all-time record

  • 14th consecutive quarter of net stock sales – $8.1Bn unloaded in Q1 (Financial Times)

  • BRK.B down ~8% over the past year while the S&P is up 27%

Let’s chew on this. Berkshire’s market cap is roughly $1Tn. 40% of that is cash. Forty. Percent. That means the entire operating empire – GEICO, BNSF, Berkshire Hathaway Energy, See’s Candies, Dairy Queen, the Apple stake, all of it – is being valued at about $600Bn by the market. On $11.35Bn of quarterly operating profit (call it ~$45Bn annualized), that’s roughly 13x earnings on the operating businesses with a fortress balance sheet sitting next to it. That’s not expensive. That’s a value stock hiding inside a conglomerate that everyone thinks is expensive.

But here’s the question that should keep you up at night: Buffett made an absolute killing in 2025. Insurance float earnings were juiced by hard-market pricing, BNSF had a great year, the Apple sales were timed beautifully, and Treasury yields handed Berkshire a free ~$15Bn+ on the cash pile. There’s no realistic scenario where 2026 matches that. Insurance pricing is softening, oil at $105 is crushing BNSF’s customers (rails carry the real economy – if industrial America slows, BNSF slows) and Treasury yields are likely lower a year from now if the Fed actually cuts.

So the real question for BRK isn’t “is it cheap on 2025 numbers?” – it’s “is it cheap on normalized numbers and what’s the new bogey?” Our back-of-envelope: maybe $38-40Bn normalized operating earnings, putting the operating businesses at 15x. Still not expensive, but not the screaming bargain the cash-adjusted math suggests at first glance.

The Real Issue: Will Investors Tolerate $397Bn of Cash from Abel?

This is the trillion-dollar question. Investors gave Buffett a pass on the cash drag for 60 years because he was Buffett. The implicit deal was: “You hoard cash, and when the world breaks, you’ll do something brilliant with it – 2008 Goldman, 2011 BofA, 2020 Japanese trading houses, etc.” Greg Abel does not have that 60-year track record. Abel got a reassuring note out at the meeting that Berkshire has a “shortlist of acquisition targets,” which is the kind of thing CEOs say when they’re worried investors are getting twitchy about idle cash.

Buffett, in his surprise meeting appearance, didn’t help the urgency case: “We’ve never had people in a more gambling mood than now.” He compared the market to “a church with a casino attached.” That’s not the language of a man about to deploy $397Bn into US equities at all-time highs. And he’s right – which is exactly why the GameStop/eBay headline above isn’t a joke, it’s a warning sign.

So what’s the trade?  We think BRK.B is a buy here, but with patience. You’re getting:

1. 1. ~$200/share of cash backing per B-share

   2. A diversified collection of real-economy businesses at a reasonable multiple

   3. Optionality on Abel deploying that cash if/when this melt-up breaks

   4. A natural hedge against the speculative excess Buffett just spent the weekend warning about

The downside is BRK underperforms in a continued melt-up – which is fine, because if THAT keeps going, we have bigger problems than relative performance. Berkshire is the anti-GameStop trade, and we want exposure to that side of the ledger right now.

The Week Ahead

Economic Calendar:

• • Monday: Factory Orders (March) at 10am, RBA rate decision tonight, Fed’s Williams speaks

  • Tuesday: ISM Services PMI, New Home Sales, Trade Balance, JOLTS, 3-Year Treasury Auction

  • Wednesday: MBA Mortgage Apps, Wholesale Inventories, EIA Crude Inventories (HUGE this week)

  • Thursday: Jobless Claims, Productivity & Unit Labor Costs, Construction Spending, Consumer Credit

  • Friday: Non-Farm Payrolls, Wholesale Inventories Final, Consumer Sentiment preliminary

The Fed held at 3.50-3.75% on April 29th and signaled one cut for the year, with a growing minority seeing zero. Watch the Fed-speak this week carefully – if oil sticks at $105+, those “no cut” voices get a lot louder a lot faster.

Earnings Heat Map:

• • Monday (today): TSN, NCLH (cruise demand check), FANG (oil!), PLTR (the AI bellwether), PINS, VRTX, ON, PSKY, GRAB, DUOL

  • Tuesday: PFE, MPC (refining margins!), SHOP, PYPL, DUK, SMCI, MSTR, LCID, AMD, OXY (oil oil oil), ANET, DVN, EA

  • Wednesday: DIS, UBER, CVS, KHC, O, IONQ, SNAP, ARM, APP, FTNT, ALB, WBD

  • Thursday: MCD (consumer health), U, DDOG, VST, COIN, RKLB, TTD, GILD, DKNG, ABNB (travel demand post-Spirit?), NET, SMR

  • Friday: ENB, NTDOY, WEN, FIS

What we’re watching: AMD/ARM for the AI cycle pulse, MPC/OXY/FANG/DVN for the oil read-through, DIS and ABNB for consumer/travel demand (especially with Spirit gone), MCD for the working-class consumer, and PLTR for whether the AI hype trade has any room left to run after the 27.1% Q1 earnings growth print that’s powering this rally.

May Highlights to Watch

• • CPI on May 13th – the biggest data point of the month. Oil at $105 doesn’t show up in core, but it absolutely shows up in headline and inflation expectations

  • PPI on May 14th – input cost pressure check

  • Retail Sales on May 15th – did the consumer get the memo about $4.50 gasoline?

  • NVDA earnings May 28th (est.) – the only earnings print that matters more than the Fed

  • Memorial Day weekend – peak driving season starts with oil at $105. Politically explosive

  • More Iran headlines, every single day – until they stop, this is a market dominated by oil and tape bombs from Truth Social

S&P closed Friday at a record 7,230.12, Nasdaq at 25,114, Dow at 49,499. The market is celebrating 27% earnings growth and ignoring oil, ignoring tankers being shot at, ignoring a sitting President openly discussing how to rig the next election, ignoring a 14th straight quarter of net selling from the greatest investor of all time, and ignoring the Buffett “casino” warning.

Hedges on. Oil exposure on. BRK.B on. And keep some powder dry – because if Greg Abel feels the urge to deploy his $397Bn, you’ll want to be deploying yours too.

May the 4th be with you!